Wednesday, October 28, 2015

Excess money refunded on cancellation of booking of flats couldn't be held as interest for purpose of sec. 194A TDS

Builder could not be held liable to deduct tax on excess amount refunded to purchasers on cancellation of booking of apartments as such excess payment could not be qualify as interest as defined under section 2(28A)
a)  Assessee-Builder entered into construction agreements with various customers.
b)  After entering into the agreements and making certain payments, some purchasers opted out of the agreement and, accordingly, assessee entered into fresh agreements with new buyers at prices that were higher than what was agreed with the old purchasers.
c)  Out of the receipts from the new buyers, the assessee refunded to the old purchasers the amount paid by them and a portion of the excess amount received from the new buyers.
d)  The Assessing Officer (AO) held that the excess amount so paid by the assessee to old purchasers had to be treated as interest paid on deposit and, hence, liable for TDS under section 194A and that having failed to do so, assessee was an assessee-in-default and, accordingly, assessment was completed under section201.
e)  The order of AO was set aside by the first appellate authority. However, the said order was reversed by the Tribunal.
f)  Aggrieved by the order of the tribunal, assessee filed the instant appeal before the High Court.
The High Court held in favour of assessee as under-
1)  Section 2(28A) which defines ‘interest’ can be attracted only in cases where there is debtor-creditor relationship and payments are made in discharge of a pre-existing obligation.
2)  The amount refunded to the purchasers represented the consideration the purchasers paid towards the undivided shares in the property agreed to be purchased and also the cost of construction of the apartment, which work was entrusted to the assessee-builder.
3)  Such a relationship between assessee and purchasers could not spell out a debtor-creditor relationship nor was the payment made by the assessee to the purchaser in discharge of any pre-existing obligation to be termed as interest as defined in section 2(28A).
4)  Further, there was no finding in the assessment order or in the order of the Tribunal that the amount paid by the purchasers, which was refunded, was accounted for as deposit or advance received from them or that there was any debtor-creditor relationship between the parties, obliging the assessee to pay the amount to the purchasers.
5)  There was also no case for the revenue that the excess amount paid by the assessee was based on any agreement between them or that it was quantified at rates that were already agreed between the parties.

6)  In such circumstances, the payments made would not qualify to be interest as defined in section 2(28A) of the Act and the assessee did not have the obligation to deduct tax at source as provided under section 194A nor could they be proceeded against under section 201A, treating them as assessee-in-default- Beacon Projects (P.) Ltd. v. CIT [2015] 62 177 (Kerala)